Chinese semiconductor stocks have more room to fall as demand for smartphones, PCs and EVs weakens in short term: BCA Research

Name: China condemns new US law aimed at boosting domestic semiconductor manufacturing
Uploaded: 2023-01-12T08:30:12.000Z
Duration: 1 min 57 s
Description: China condemns new US law aimed at boosting domestic semiconductor manufacturing

The plunge in stock prices of Chinese chip makers has not run its course given the poor industry outlook in the next six months

Wait to go overweight until stronger signs of industry recovery from the middle of the year, BCA Research says

Reading Time:2 minutes

Why you can trust SCMP

Not a good time yet to go overweight on Chinese semiconductor producers given weak demand outlook. Photo: Shutterstock Images

Jiaxing Li

Published: 4:30pm, 12 Jan 2023Updated: 4:33pm, 12 Jan 2023

The plunge in Chinese semiconductor stocks from their peak in 2021 may have more room to run and investors should wait for better opportunities to profit from a rebound later this year, according to BCA Research.

Demand for chips is not recovering just yet as global electronic consumption remains depressed and electronic goods makers cut back orders to run down their inventory, analyst Ellen He JingYuan said in a report on January 11.

“The cyclical slump in China’s semiconductor sales has further to go, with chip sales volumes and prices projected to contract in the next six months,” she said. Investors should wait for a better entry point before shifting to an outright overweight stance favouring this industry, she added.

01:57

China condemns new US law aimed at boosting domestic semiconductor manufacturing

China’s semiconductor sales plunged 21 per cent year on year to US$13.4 billion in November as economic headwinds continued to hammer global demand, according to US trade group Semiconductor Industry Association. The country’s chip imports, meanwhile, also recorded the steepest slump in nearly a year due to an ailing economy at home.

Semiconductor Manufacturing International Corp, or SMIC as the nation’s biggest chip maker is known, has declined 8 per cent in Hong Kong over the past 12 months, while Hua Hong Semiconductor lost 28 per cent over the same period. An index tracking 355 mainland peers slumped 19 per cent in 2022, according to Shanghai-based data provider DZH.

China’s second-largest chip maker Hua Hong, which specialises in advanced technology, has lost more than half of its market value since reaching its peak of HK$60.25 in February 2021. Peers like Advanced Micro-Fabrication Equipment and Naura Technology Group slumped by 49 to 57 per cent since mid-2021, according to Bloomberg data.

BCA Research recommends a relative trade of buying Chinese semiconductor stocks while shorting their global peers at the same time. It estimates China’s domestic chip demand will outstrip global demand in the long haul in 2023.